California takes center stage for '96 mid-year forecast

Call it the Left Coast if you will. Certainly things are done a little bit differently in California, including real estate recessions.

Most observers agree that the state is now at or near the bottom of its recent real estate woes, and as every astute investor knows, buying low and selling high only works if you can accurately pinpoint the peaks and valleys in different property types, then take advantage of the timing window before it goes away.

That is one reason why the 1996 Mid-Year Real Estate Forecast Conference is timed to coincide with California's expected recovery. The one-day conference will be held later this month on June 20 at the Century Plaza Hotel in Los Angeles. Conference sponsors include Grubb & Ellis, E&Y Kenneth Leventhal Real Estate Group, Cox, Castle & Nicholson, National Real Estate Investor and the Los Angeles Business Journal.

Every new year for at least a decade, Grubb & Ellis, based in San Francisco, has released its annual real estate forecast (along with everyone else). This year, Thad Seligman, senior vice president and district manager for Grubb & Ellis' Los Angeles office, thought something new was in order to draw attention to the trends and opportunities that lie for the taking in California.

"I thought wouldn't it be interesting to really hold our feet to the fire in the middle of the year and take a look (at the markets) and if what we thought was going to occur based on historical trends in the marketplace, whether we were right, or if things are changing so that those kinds of forecasted trends are taking us in a different direction," says Seligman. "So we said we'd be willing to put our reputations at stake and see what happens."

Out of that original thought came the genesis for a working conference, and with it, two key themes that are most impacting the state's economy.

"The recovery of Southern California is being led by two areas - entertainment and international trade. We thought it would be interesting to hear from those arenas and see what the people involved in them have to say about it, and give the marketplace a better understanding of why entertainment and international trade are indeed going to help lead the recovery, and what the impact of that is. We all hear about the growth of the entertainment industry, but what's the translation of that growth to demand on office space and studio space?" says Seligman.

Who should attend

The one-day conference is expected to attract a partisan California crowd, but it's really open to anyone with a vested (or invested) interest in the market. So who should attend?

"Anybody in the Southern California market, whatever their interest might be, whether they are people or companies who have money invested here, whether they are lenders, whether they are the legal profession who is heavily into deals and whose future depends on continued growth of this area of California, and especially Southern California," says Seligman.

"They're going to want to be there. They're going to want to understand what the future growth of this marketplace is going to be and why, and get a sense of its longevity, get a sense of its depth, and begin to position themselves in terms of making real estate and business decisions on the future of California."

Few observers would disagree that California has taken some hard knocks in recent years. Being the last out of a downturn is never easy, and for investors looking to make money in markets across the country, California has been a bit of a holdout. Until now.

"We've gone through in the last number of years some pretty bad raps," says Seligman. "Clearly what I think people will hear from this conference is that this is the last great opportunity in terms of real estate investment. Where our prices are and where values are right now and with standing on the threshold of really the momentum beginning to build for a recovery, there are some excellent buys here."

In general, the Western states have been slower to recover, but as with any cycle, most reached bottom some time ago and are already heating up.

"What has occurred in other markets, be it Texas or Arizona or Colorado, is they went through that kind of real estate recession and prices bottomed out and began to rise back. We're seeing now in Phoenix, the last one (out of the recession) prior to California, is the stabilization of values. We're still in some cases with some falling values at the tail end of the REO market and the value-added market here. But people are able to come in and in many cases buy real estate at less than replacement (cost) in a marketplace that is pretty well built up and whose lead time for new development and construction is certainly a ways off, but with the demand beginning to build. We're seeing in a number of submarkets even now in the office sector rents increasing and vacancies declining rapidly."

Let's say you're in Cleveland, or Stamford, or Dallas. What could you take away from the 1996 midyear conference?

"Clearly international trade has some similarities to cities that have major port facilities or major air transportation," says Seligman. "International trade is not a sector that is unique only to Southern California, it is international trade. What is the depth of the potential of that market segment in terms of bringing revenue, new money, to this country, creating new jobs, what's the impact on transportation, what are the issues that other places are going to have to deal with."

One of the hottest buzzwords floating around the industry these days is entertainment, and this sector of the retail business will be in the spotlight. After all, this is California.

"A lot of the new development coming out is mixed-use retail with a pure high-energy entertainment component to draw people to a mixture of retail and entertainment," says Seligman.

Much of the conference will also focus on demographic trends and dispelling many myths about California's employment base, says Seligman.

"A lot of people hear that the growth in Southern California is immigration and it's not the kind of population that generates lots of high-paying jobs, but a good part of our growth has come from in-place increased family size and there is a large segment of the population that is pretty highly trained, skilled and educated," says Seligman.